Electric rate jolt coming
BGE auction tomorrow to be reflected in sharply higher bills in July
But tomorrow is the beginning of the end for consumers who cherish carefree hours of watching television, washing dishes or basking in air-conditioned bliss.
Somewhere in the 15-story East Tower of Charles Center in downtown Baltimore, brokers for the state's largest utility will be locked in a secure room with a contingent of state regulators, consumer watchdogs and energy consultants. They'll be positioned in front of computer screens, waiting for secret bids from at least a dozen power producers and energy traders who are vying to supply wholesale electricity to Baltimore Gas & Electric Co. and its 1.2 million customers.
It's the third - and likely the last - in a series of one-day reverse energy auctions that few Marylanders know about, but none will be able to ignore come July. That's when regulatory price caps come off and results of the free-market bidding will hit household budgets with the ferocity of a hurricane, some say.
Electric bills could go up anywhere from 40 percent to 80 percent for BGE customers as the effects of utility deregulation are felt for the first time since legislation restructuring the industry was passed in 1999. Customers will learn the amount of the increase in March when bidding results are calculated and revealed. Utilities that serve other parts of Maryland - such as Allegheny Power in Western Maryland and Potomac Electric Power in suburban Washington - also are holding power auctions.
BGE officials are not brimming with optimism about the imminent bidding. Rising demand for all forms of energy and hurricane-related supply disruptions in the Gulf of Mexico last fall have sent prices for coal, natural gas and oil soaring. All are burned to make electricity.
"Most of those [fuels] are up over 100 percent since 1999, and that's what's really driving up the price of electricity throughout the United States," said Wayne Harbaugh, BGE's manager of pricing and regulatory services.
Such auctions culminate a long transition to the free market in states that opted for electric utility deregulation. From the Northeast to the Midwest, the bidding results have ignited a vigorous backlash from consumer groups, sending lawmakers scrambling to find a solution to an energy crisis few anticipated when they sold voters on the virtues of competition.
The architects of deregulation envisioned a free market where scores of retail electricity providers would compete for residential customers, driving down prices. But competition hasn't arrived, critics say, because the rate limits imposed by lawmakers six years ago set BGE's prices so low that challengers couldn't compete. The same roadblocks are in place in other states with deregulated markets.
In Illinois, consumer groups have responded by trying to block that state's first energy auction scheduled for September.
"It's a gloomy picture for consumers," said Pat Clark, a spokeswoman for the Citizens Utility Board of Illinois.
Similar auctions held recently in New Jersey and Delaware raised electricity costs in those states by 55 percent and 59 percent, respectively, although those increases haven't filtered through to customers' bills yet. In Delaware, some lawmakers have called for re-regulating the industry, while others are trying to ease the transition to higher rates by phasing them in over a period of years. Similar efforts are under way in Maryland.
"One should expect more volatility under deregulation, in the way of both higher and lower prices," said Paul Patterson, an energy analyst with Glenrock Associates in New York. "You're no longer guaranteed anything, and that's what it comes down to."
Before deregulation, BGE owned its own power plants and delivered that energy to customers over its transmission lines. BGE still delivers power, but its generating plants belong to a different division of its corporate parent, Constellation Energy Group, which sells the electricity it produces to the highest bidder in the wholesale energy market. Constellation recently agreed to be acquired by Florida-based FPL Group Inc., which was drawn to the transaction in part by the Baltimore-based energy provider's thriving wholesale trading business.
With no generation of its own, BGE must go out and buy its power in the same wholesale market that has helped Constellation Energy post record profits in recent years. But unlike Constellation, BGE will be looking to do business with the lowest bidder, not the highest.
Bidders in tomorrow's reverse auction - where the lowest bid wins - are kept secret, but it's expected that Constellation will be among those vying to supply at least a portion of the electric needs of its BGE subsidiary in the year ahead. However, regulatory firewalls are designed to prevent the two sides of Constellation's business from sharing information or communicating with each other. BGE officials say there's only one way Constellation can beat out its rivals.
"It really comes down to one number - the price that's bid," BGE's Harbaugh said.
Harbaugh will be among those monitoring the bidding. He will be joined by a limited number of other BGE staffers, representatives of the Maryland Public Service Commission, the Office of the People's Counsel and a smattering of energy consultants and auditors who will be there to make sure the process is fair and delivers the best possible price to consumers.
Past participants describe the process as a little like watching paint dry. That's because participants tend to wait until just before 5 p.m. to submit bids so that they can spend all day analyzing the latest price trends in energy markets. Even the slightest movements in the price of natural gas or coal, for example, can influence a company's bid.